Commonwealth Bank Australia Limited (CBA) – Retail Entitlement Offer

  • Allocation – One ‘new’ CBA share for every 23 shares held in Commonwealth Bank of Australia (CBA) on the record date (17 August 2015)
  • Offer price - $71.50 per new CBA share
  • Allotment Date – 18 September 2015
  • Bookbuild date – 14 September 2015
  • Bookbuild allotment date – 22 September 2015
  • Retail Premium – $2.00 per entitlement
  • Cash received in CMA - $2.00 per entitlement 

In August 2015, CBA announced an accelerated fully underwritten renounceable rights issue. As part of the offer, eligible shareholders were offered the opportunity to purchase ‘new’ CBA shares at an offer price of $71.50, representing a 10.5% discount on the dividend adjusted closing price on the ASX as at 11 August 2015. 

The entitlements will be issued at nil cost with an offer price of $71.50 for each new CBA share

To be eligible, CBA shareholders must satisfy the following criteria:

  • Registered shareholder of CBA Ordinary Shares on the Record Date (7.00pm (Sydney time), 17 August 2015);
  • have a registered address in Australia or New Zealand;
  • must not be an institutional shareholder;
  • are eligible to receive an offer under the Retail Entitlement Offer under all relevant securities laws; and,
  • are not a US person

Where the above criteria are not satisfied, the shareholder is ineligible.

Upon issuance of entitlements, eligible CBA shareholders can elect to either:

  1. Exercise the Entitlement
  2. Dispose of the Entitlement (sale via ASX or sale/transfer to a third party)
  3. Renounce the entitlement or allow the entitlement to lapse

Ineligible shareholders will have their entitlements automatically sold on their behalf in the Retail Bookbuild and any sale proceeds will be paid out to the ineligible shareholder.

The issuance of entitlements should not, of itself, result in any amount being included in the CBA shareholder’s assessable income.

The exercise of entitlements should not, of itself, result in any amount being included in the CBA shareholder’s assessable income.

Where the CBA shareholder exercises all or part of their entitlement, they will receive new CBA shares. The cost base for each new CBA share will be $71.50, being the issue price of each new share.

The new CBA shares will be treated as having been acquired on the date the CBA shareholder exercised their entitlements. 

Entitlements may be sold on the ASX, or sold or transferred to a third party. Any gain or loss arising from disposal will be assessed under the CGT provisions.

For CGT purposes, the entitlements that are sold will be treated as having been acquired on the same date as the original CBA shares.

A capital gain will arise if the capital proceeds from the disposal of the entitlement exceed the cost base. As the cost base of each entitlement is likely to be nil, the capital gain will be equal to the sale price.

Any capital gain may be reduced by the CGT discount provided certain conditions have been satisfied. For resident individuals and trusts, the discount is 50% and for superannuation funds, the discount is 33.3%.

Renounced or lapsed entitlements will be sold via the Retail Bookbuild, with any proceeds (the retail premium) arising from the sale paid to the investor.

Based on the taxation advice provided by CBA, the retail premium will be treated as a capital gain.

Note: ATO may seek to apply an alternative tax treatment, outlined by Taxation Ruling TR 2012/1, which would treat the retail premium as ordinary income. CBA taxation advisers do not believe this ruling applies to this entitlement offer. For more details, please see Section 5 of the Retail Offer Booklet.

22 September 2015.

Where a non-resident investor disposes or transfers their entitlement, any capital gain that arises from the transaction may be disregarded, as their entitlement is unlikely to constitute taxable Australian Real Property (TARP).

Where a non-resident investor exercises their entitlement and acquires new CBA shares, dividends received from new CBA shares may be subject to a non-resident withholding tax of up to 30%.

The ATO has not released a relevant class ruling for the entitlement offer for new CBA shares and is not expected to do so. 

Exercise of Entitlements
Any new CBA shares acquired through exercise were taken to be acquired on the date the investor exercised their entitlement.

The cost base of each new share was $71.50.

Disposal of Entitlements
We have reported a disposal of the relevant entitlement on the date of sale on the ASX or transfer to a third person. The capital proceeds were the amount received from the sale or transfer.

The full capital proceeds was reported as a capital gain derived from the sale or transfer in the ‘Disposal of capital items’ section of the investor’s Detailed Report.

Renouncement or Lapse of Entitlement
Based on the taxation advice from CBA, any retail premium was reported as capital gain of $2.00 per entitlement.

This was reported in the ‘Disposal of capital items’ section of the investor’s Detailed Report.